writing > product > Human-first companies: compensation
Last Updated: September 2020
19 minute read

Human-first companies: compensation

TL;DR

My recommendation: pay everyone the most you as a company can afford to, scaled to their value generation for the company, whilst increasing the value of the company to make room for new initiatives, new teammates, and reinvesting in your community and in humanity.

Do this by embodying flexibility and empowering efficiency, agency and sustainable business practices, which is simultaneously better for the company and is also a form of (intangible) compensation in itself.

Who is this for?

I began writing this for versions of myself from alternate timelines, had a few things turned out differently in the world in the years following my graduation from college, or at BitGym, the business I am cofounder of.

Between being pushed away from VC-funded startup culture in the aftermath of the 2008 financial crisis, to being forced to adopt a fully distributed work culture since 2013 due to immigration woes, this version of me got to experience and grow with a unique set of work circumstances for a long time and build resilience to what used to be a unique class of challenges. Which happened to be nearly ideal preparation for what a lot more people now must also experience in 2020, especially with the cascading impacts of COVID-19 on work and the economy, and the gaping weaknesses in our traditional ideologies it has revealed.

So there are fundamentally two groups of folks this is intended for today

  • founders, managers and owners (and those soon-to-be) who are tempted to adopt/retain the status quo, but aren’t locked into it yet and have the position and privilege to impact the workplace: when it seems preferable to adapt hitherto mainstream ideas of how to compensate and treat workers, yet keep running into more and more friction.
  • folks entering or in the workforce who haven’t yet had a chance to experience alternate ideologies of worker compensation: without more ideologically different compensation perspectives to compare to, we are naturally led to believe bigger numbers and shinier offices are the only improvements to be made to compensation, and even being allowed into the system (be employed) is most of the compensation from our employer.

The thoughts in this post are primarily about compensation from the organization to the worker, yet we must discuss other aspects that are inextricable. A few of these require further context beyond the scope of this article as they are yet again from a different perspective than traditional workplace culture. I will update this post with links as I extrapolate on those.

Where am I coming from?

My experience is being cofounder of a very small (6 full-time as of today), fully distributed company, founded and primarily based in America. We are (almost purely) in the consumer software industry, where the geographic location of an individual contributor approaches irrelevance. I think it shouldn’t be that different for a lot of organizations, but in a few cases the location of an employee can significantly affect their impact, and the expected impact should always be the prime determinant of their compensation.

Most of these thoughts and guidelines do not apply to non-payroll contributors, such as contractors and freelancers. These people have hourly rates, and may not necessarily be tasked with the same kind of long-term choices and work.

Note: I use the terms “organization”, “business” and “employer” somewhat interchangeably here. In part, because much of these perspectives are not exclusive to for-profit businesses or even to “work”.

Schools of thought

There are two primary ways to look at employee compensation, appropriated from this essay (the rest of this essay is very good too, and generally aligned with what I propose):

Value-minus: an employee brings $X of value for the company, and if X is independent of location, they are compensated any amount up to $X 1

Cost-plus: Employees are compensated an amount $Y based on the bargaining power, cost of living, and market-rates for their roles where they are based. This is usually divorced from $X, which is the value they bring to the company.

As you can imagine, I endorse the first (Value-minus), with the following values forming the foundation of my reasoning.

We are not used to thinking of compensating workers via value-minus, except in the early stages of a business, and need to make culture-wide adjustments to support the change in perspective. Value-minus is the standard approach to compensate workers while the organization is starting out, because it winds up less than cost-plus since the business hasn’t scaled up to enough of its value potential yet. As the company’s scale and revenue grow, and the value-per-employee exceeds the market-rate for cost-plus, it is natural to switch to cost-plus compensation.

This is all de facto optimization towards corporate interests at the cost of fair worker compensation. Instead we should focus on hiring fewer people at livable compensation when scaling, and continue into value-minus compensation beyond market-rate as revenue grows.

Trust in workers

If a business is not beholden to concepts such as shareholders, board members, “leadership teams” and “C-suites”, it makes sense to shift towards a worker co-op. This allows workers to have the rewards, responsibility and ownership of the work.

However, the organization’s shareholder distribution is not the critical factor. It is still possible to allow workers impactful responsibility and returns. What is critical is trust in the people who have their hands in the work.

When you can trust your workers to do their job at a high level, you can save resources in management, meetings, and employee monitoring. Which in turn can be used to compensate them better, while motivating them through ownership over the results of their work. This trust can only be built if it is sought out from the [[hiring]] process, and fostered past the worker’s departure. Present-day work culture in most countries has not invested in this beyond the surface, because it had crafted environments in which work could be extracted from workers without needing to trust them.

Not only is this worker-employer dynamic much harder to maintain with the sudden onset of COVID-19, but it is time we reframe the basis of this dynamic from

“What if my employee just takes my money and doesn’t do what I tell them to, especially if someone isn’t there to watch them and make them work?”

to

“How can I empower my teammates, who want to achieve the same goals as I do, to do their best work, and compensate them fairly for it?”

Divest from extreme capitalist motives

Modern-day ultra-capitalism is built on the formula

Exploit human resources (time, freedom and comfort of workers) to amass wealth for the owners, in exchange for the minimum viable “market rate” of these workers’ skills2

From a moral standpoint, I encourage businesses to distance themselves from the modern ultra-capitalist model of companies and employers serving an owner class, typically through “value extraction” from communities, natural resources, customers and relevantly, workers.

Rather than a farce of asking employees to “own their work” without owning the returns of that work, workers should be trusted with a fair share of all ownership of their work.

Modern trends of <36-month employment stints is a direct result of reduced actual ownership of work, regarding not only compensation but also credit, control and values workers are able to express in their work.

The linked article and other pundits attribute something that is far more complicated simply as *“They want to do something that matters.” *There’s a lot packed into that, including feeling like they are participating in a broken system of corporate ladders, lopsided compensation, materialist lifestyles, exploitative cultures and unethical business practices perpetuating inequity and other problems that plague our societies worldwide. Many of these feelings are the product of the employment ecosystem forged over time by late-stage megacorp capitalism.

Equal pay for equal responsibility

On a simpler level, I don’t believe people should be compensated differently for similar work, regardless of where they choose to live. For smaller organizations, “responsibility” is more apt than “work”, because often times the work may be less well-defined.

The implicit assumption of equal pay for equal responsibility, is that when a worker is given a fair share of ownership of the business as described above, there is and will always be unseen labor that they must perform, such as [[terraforming]], future-proofing, documenting, long-term planning and doing other longer-term work3 for the good of the company.

An employer shouldn’t calculate worker lifestyle

A company’s fiscal responsibility4 towards its workers is to compensate them for work done. Healthcare, dietary needs, transportation, and social life ideally do not belong as responsibilities of the company, however in America it is legally and logistically optimized to be so, so we operate within that framework.

Where a person lives is subject to the needs of their lives, whether an expensive tier-1 city or a countryside village, and factors in their family, their social needs, their weather and cultural preferences, and more. None of these are responsibilities or privileges of a company to analyze, accommodate or dictate the limits of.

Workers should be rewarded for impact, not hours

Historically – and presently – businesses own workers’ (immutable, non-reproducable) time in exchange for livable wages. This has been a cruelly outdated perspective since the advent of cheaply ~infinitely scaling technology (software) perpetuated by greedy owner classes.

The best time to correct this was yesterday, the second best time is now, alongside the next biggest revolution in worker flexibility forced by the global pandemic via distributed work. Culture and society is ready to move past the antiquated 9-5, and in that process we might also be able to shed the 8-hour workday. Here are some perspectives that are not part of the current status quo.

Expertise, not attention

When some task or problem P is within person A’s domain within an organization, it doesn’t always have to mean that P requires A’s direct or immediate attention, but it does mean it should benefit from A’s expertise. Most of the time, the problems inherent in P have already been solved and the solutions are easily available to reference. This could be in the form of documentation, guides, past work, or other artifacts left behind by A as a first stop of reference.

If ~P presents itself often enough and across different people or parts of the organization, then it is best to require A’s attention and expertise to streamline the artifacts to help anyone resolve P-like-problems, rather than their immediate attention to solve that instance of P.

This should be the normal approach, and not the exception. The predictable exceptions should be:

  • in times of emergency, and where A’s experience enables them to resolve P significantly faster to significant business benefit, they should do it.
  • when the problem has sufficient deviations from the expected traits of a P-like-problem, A’s direct attention and expertise can formulate a more effective solution that can be used as a future reference point

Execution, not hours

Focus metrics and attention not on how much time a worker spends presenting that they are working, but on the successful execution of tasks and responsibilities assigned to them.

This means workers should be empowered to and responsible for

  • future-proofing the business operations against their absence.
  • improving workflows and processes to more effectively complete their tasks

in addition to the business operations and development itself they are responsible for. This means everyone should be encouraged to work on documentation, automation, terraforming, process development, and strategic planning.

Under most circumstances, “spend more time on your tasks” is not the best feedback when improvement is needed.

Efficient, flexible knowledge-sharing

Any effective organization requires a certain level of sharing knowledge (expertise) and coordinating across workers, as described in the first subsection here. It is the responsibility of the workers with that expertise to share their knowledge effectively in addition to executing on their business operation tasks. When knowledge needs to be shared for the first time, costs on the worker are

  • time away from task execution
  • disruption in flow state for deep-dive tasks
  • focus away from active problems

Traditionally, we rely on a lot of meetings to share knowledge, but remote work requires a change in perspective on [[communication]] and flexibility (see below).

Give workers back their time

The single most important change to make moving into the era of remote work, is to prioritize the flexibility and long-term efficiency mentioned above, but not only with knowledge sharing, but all work.

Away with the 9-5

Removing large-scale coordination challenges may be hard at first, but as it is achieved it results in more resilient operation of the organization. Over the course of years, goal-setting and progress-reporting is the lion’s share of meeting time use. Knowledge-sharing as mentioned above is the next With effective asynchronous communication much of this can take place without interrupting anyone. This also reduces the requirement for people to be available at specific times, allowing workers to optimize around their motivation and inspiration.

This enables increased adoption of the “maker’s schedule” to focus on generating value via the worker’s creativity and craft. Together with increased worker ownership of work, prioritizing maker’s schedules helps locate and eliminate “take lots of meetings” roles from the organization, except when coordinating externally.

Especially in these early days of evolving mainstream remote culture, it is still a good idea to set expectations of 1-2 hours in the workday or workweek when any individual can be available to respond to important requests not covered by asynchronous infrastructure. As the infrastructure matures, you should be able to trim this and give your workers more of their time back.

Be wary of “hustle culture”

Not everything great has to be built in a sprint or a quarter, and before anyone else can say the word “competitor”. Some workers get inspired by that, but most experience burnout within a few cycles. Breakneck release speeds don’t reward or inspire planning for the long-term, favoring fast-and-lose “shippable” implementations of feature bullets.

More importantly, it burdens workers with unreasonable expectations where one must either sacrifice quality of their craft or their time. This results in passionate folks spending nights and weekends away from a healthy life in service of artificial deadlines.

The only times tight deadlines should be suggested and enforced are when there are truly existential threats to the organization and employment of the team resulting from unforeseen external circumstances, which should be hedged against pretty aggressively after the first year of being in operation by focusing on [[sustainability]].

Vacations and sabbaticals

This one is pretty obvious. A great side-effect – or perhaps the central collaborative goal – of building flexible knowledge-sharing, avoiding hustle culture, and asynchronous long-term communication is creating an environment wherein even critical workers and decision-makers can take extended vacations.

And they should. At the end of the day, work is done by people, and people need time off to clear their heads, recalibrate, indulge in hobbies, spend time with loved ones, and take care of important business outside the company to be able to do effective work inside the company.

In addition to this time, workers should also be encouraged to spend time away from daily responsibilities (drudgery) on sabbaticals. This greatly benefits those folks who would love to undertake more significant learning and problem-solving challenges, but prefer not to balance that burden alongside continuing business responsibilities. Even 1 month sabbaticals after a year of working, which can be expanded over time can make a huge difference to the value the worker can bring back to the business over their tenure.

Flip the formula: tools and peace of mind

If you flip the capitalist formula mentioned above (exploit worker freedom, time and resources to accumulate company resources), you will discover that this function isn’t quite bijective – It is possible to

invest company resources in worker comfort and freedom and harvest both profits and fulfillment for all workers.

This is only true and viable with a long-term mindset, alongside a general focus of long-term robustness of the company.

Traditionally, businesses have invested much money in seducing workers to work longer hours by decking out the workplace with gyms, snack bars and toys, or covering commute and meal expenses when working late. Without offices, these are no longer available or attractive. More importantly, these aren’t focused on giving workers back their time, or relieving much of the financial strain on their lives, as workers remain liable for their most signficant personal expenses (rent, vehicle ownership, etc).

Instead, here are two healthier options to focus on investing (within the tax liability limitations of the workplace)

Better tools: computers, peripherals, home office setups, stationary, collaborative software allow workers to do better work with fewer frustrations, often increasing their output within the same amount of time spent working while also coming away feeling better about their work.

Reducing financial cognitive stress: find ways to incorporate covering stressful life expenses where possible by integrating them into their work – home office rental and furnishing expenses, internet connections, phone plans, home electronics that can be considered part of their home office, transit costs, travel costs.

For smaller outfits, providing the above is more cost-effective for the business without having to directly compete with the highest salaries offered by giants in the same industry, yet promising a better overall quality of life.

Evolve negotiating

A word about salary negotiations, an important part of how workers have asserted their worth historically (in some parts of the world at least). If you are familiar with the general challenges marginalized people face in the workplace, it isn’t hard to imagine something as opaque and obfuscated as salary negotiations suffers from serious inequity.

There is plenty of good advice for how to navigate salary negotiations, especially with for-profit employers.

Yet its efficacy and applicability varies wildly based on who is practicing it. If you are a “visible fit” by aligning with the mainstream demographic of your future colleagues, you are likely to walk away with a much better deal than a marginalized candidate.

The simplest way to correct for this is to rethink negotiations from personal allowances, to enhancing the livelihoods of all workers at the organization, who are systemically treated equally and respectfully. Setting this expectation upfront and with transparency will enable those who are strong at negotiations to improve the workplace for everyone, and not create further disparities in workplace.

Closing thoughts

Making the workplace a place for healthy empowerment of people to do their best work as part of a team while improving their life shouldn’t be a novel concept, yet it is strangely foreign when compared to the way majority of employers operate these days.

More important than any of the specific perspectives I mentioned here is perhaps just normalizing the idea that the workplace and product of the business can belong to all of the workers again, and not just an owner class.

Referenced posts

[[terraforming]]: drafting. On the labor of having to create a functional and healthy work environment before being able to do one’s intended work of interest and passion. [[communication]]: drafting. On the great deal of thought other remote work advocates have put into effective distributed and asynchronous communication. [[sustainability]]: to be drafted. On being honest with oneself (as an organization and as a leader), checking to make sure cracks aren’t spreading through processes, teams and people when working remote. [[hiring]]: to be drafted. On shedding pointless obstacle courses as a stand-in for evaluating whether someone is a good fit for a team.

  1. typically less, but tightly proportional to X – the difference is added to the value of the company 

  2. different outfits adopt this formula to different extents. I intentionally chose wording that describes one extreme. The fact that majority of businesses do not operate at the very extreme is true, often because it requires a significant amount of market leverage that only the most powerful businesses can adopt this to its extreme. There is further nuance that is beyond the scope of this post. 

  3. longer-term decisions and fulfillment of tasks inevitably will be more work than what is essential for executing an immediately due task to an acceptable level without that long-term responsibility. 

  4. a company does have other responsibilities towards its workers, such as providing a safe and healthy work environment, promoting ethical values, making room for the individual’s life goals outside the work place, compensating for emotional labor in the workplace, etc.